Greek Risk Again Weighing on the Euro

April 15, 2010

It took just four days for concerns about Greek debt to roar back.  A third of the post-aid package decline in Greek two-year yields has been reversed, and the Greek-German ten-year spread again exceeds 400 basis points.  Investors are convinced the Greek government will have to use the EUR 45 billion package very soon and still wonder if Germany may balk at the last moment.  Greece has meanwhile scrapped plans to borrow in the United States.  EUR 16.3 billion must be raised by May 19.

The euro and Swissie lost 0.8% against the dollar, which has been unchanged against the yen, loonie and kiwi.  The dollar is 0.4% and 0.3% firmer against the British pound and Australian dollar.

German, Japanese, and British ten-year sovereign debt yields slid 2, 1, and 1 basis points.

Oil and gold prices have slipped 0.2% and 0.4% to $85.66 per barrel and $1154.90 per troy ounce.

Chinese on-year first-quarter GDP growth of 11.9% showed further acceleration from 10.7% in 4Q09 and 6.2% from 1Q09 and surpassed market expectations centered around 11.6%.  CPI and PPI inflation of 2.4% and 5.9% in March after 2.7% and 5.4% in February was also below analyst forecasts but high enough to sustain speculation that interest rates will get lifted soon.  The last time growth went above 11% elicited a rate increase within a month.  In other Chinese data released overnight, industrial production and retail sales recorded March on-year gains of 18.1% and 18.0%, each very close to forecasts. Fixed asset investment growth of 26.4% in the year to 1Q10 was likewise near expectations.

The Reuters monthly Tankan readings for April of zero for Japanese manufacturers and minus 14 for non-manufacturers each showed solid eight-point improvements from March results.  Japan’s recovery retained momentum heading into the second calendar quarter.  Industrial production in February, however, got revised from zero to minus 0.6%, but such followed an out-sized 4.3% leap in January and left output 31.3% above its year-earlier level.  Depleted inventories are now getting replenished with gains of 1.1% in January and 1.6% in February, yet the inventory ratio remains 30.0% below a year ago.  Capacity usage was unchanged on month in February but up 43.8% on year, while capacity showed nil change either from January or a year earlier.

The Bank of Japan’s quarterly report on regional trends upgraded conditions in seven of the nine major regions.  All nine are experiencing a pick-up in activity, although at different speeds.

Australia’s index of expected consumer price inflation over the coming year accelerated to an 18-month high of 4.1% in March from 3.2% in February.  Central banks never like to see that kind of development.

New Zealand’s purchasing managers index improved 2.7 points from 53.6 in February to 56.3 in March.

Wholesale price inflation in India of 9.9% in March was less than expected.  Turkish unemployment of 14.5% in January was up sharply from 13.5% in December but a percentage point less than in January 2009.

Retail sales in Singapore were 4.8% greater in February than a year earlier.  Such had risen 2.1% in the year to January.

According to Nationwide, British consumer confidence weakened to 72 in March from 80 in February.  The drop was not anticipated.

Spanish consumer prices increased 0.7% last month and by 1.4% on year, but core inflation stood at a 12-month rate of merely 0.2%.

Italy’s trade deficit narrowed 31.5% on month to EUR 2.33 billion in February.  Norway’s trade surplus contracted 19.8% to NOK 26.0 billion in March.  Swedish unemployment of 5.2% in March was somewhat less than forecast.  Finnish retail sales were 1.3% higher in February than a year earlier.  Czech industrial producer prices edged up 0.1% in March but were 0.8% less than in March 2009. 

Another big U.S. data release day lie ahead, featuring industrial production, the National Association of Home Builders index, the monthly Treasury capital flows data, and the New York and Philly Fed indexes.  Canada reports existing home sales.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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